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Disclaimer This document contains forward-looking statements with respect to the operations, performance and financial condition of WH Smith PLC. By their nature, these statements are subject to risks, assumptions and uncertainties that could cause actual results to differ materially from those expressed or implied because they relate to future events. Unless otherwise required by applicable law, regulation or accounting standard, we do not undertake to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise. Nothing in this presentation should be construed as a profit forecast. The financial information referenced in this presentation does not contain sufficient detail to allow a full understanding of the results of WH Smith PLC. For more detailed information, please see the interim results announcement for the six months ended 28 February 2013 which can be found on the Investor Relations section of the WH Smith PLC website - www.whsmithplc.co.uk.
WH Smith PLC • Introduction Kate Swann • Financial review Robert Moorhead • Business review Stephen Clarke • Summary Kate Swann
Group – overview • Further strong profit performance from the Group, another resilient performance from High Street with further good growth from Travel • Cash generative Group with a strong balance sheet - optimal use of cash continues to be a focus • Returned £28m to shareholders via the share buyback • Interim dividend up 13% YoY • Challenging economic environment – continue to manage the business tightly whilst investing for the future • Resilient business with consistent record of profit growth and cash generation • Opportunities for continued growth
Group financial summary 1 Stated after directly attributable share-based payment and pension service charges 2 Diluted (weighted average number of shares 2013:129m; 2012:135m)
Group profit before tax 1Stated after directly attributable share-based payment and pension service charges 2 From 1 September 2013 the revised IAS 19 requires pension interest to be based on the net balance sheet pension surplus or deficit. This is currently nil. As we continue not to recognise the accounting surplus on our balance sheet, there will be no pension interest income in our Income Statement (comparatives will be adjusted for prior periods).
Profit from trading operations 1 Before interest and tax and after directly attributable share-based payment and pension service charges
Return of cash to shareholders • Consistent record of growing dividends • Supplemented by buybacks and a special dividend • Whilst continuing to invest in the business 1 2 1 Cash dividend paid and interim dividend announced. 2 £28m returned at 10 April 2013
Good profit performance up 7% to £29m, despite economy Total sales flat; LFL sales down 4% Gross margin improvement of c.160 bps YoY; costs well controlled Continue to invest for the future: technology, resources, space and format development Well-positioned for further growth in the UK and internationally as the economy improves and UK passenger numbers return to growth; well positioned across 5 UK channels UK unit growth continues; 12 opened in H1; 30 planned for the year successful international development; performance good; 78 units now open; 121 units won in total internationally Travel – overview
In Air, LFL sales down 4% Economic climate impacting UK passenger numbers; continued variability between airports Medium-term forecasts show return to growth; we are well positioned for recovery Margin and cost management successful Continue to invest in service and improved efficiency Continue to win new space; 4 new units opened in the UK in H1; further 3 units due to open in the UK in H2 Travel – Air
Rail In Rail, LFL sales down 5% LFL London mainline rail down 5%, regional rail down 6% Invest in new technology to improve efficiency Continue to win new space; 1 new unit opened in H1; further 4 units due to open in H2 Travel – Rail and Motorway • Motorway • Performance in line with expectations • 1 new unit opened • 122 units trading, all bar 7 units operate as franchises
Hospitals Further good progress made in the hospital channel In Hospital, LFL sales were down 1%, demonstrating different channel dynamics to other areas of our business 119 units now open in this channel 5 new units opened in H1; further 5 due to open in H2 Expect to continue to open new space into the long-term Workplace / Other 24 units now open and performing well 1 new unit opened in H1; further 6 due to open in H2 Expect to continue to open new space in this underdeveloped channel Travel – Hospitals and Workplace
International continues to grow rapidly; performance continues to be good Successful first half in terms of winning new stores; announcing today a further 20 new units, plus an additional 30 kiosks in China Total of 121 units now opened or planned internationally Continue to utilise three operating models across four channels Around 2/3 of units run as franchises Travel – International
Travel – International Chinese Kiosk Qatar Airport
Travel – Margin and cost management • Expect economic conditions to continue to remain challenging in the short-term • Continue to manage margins and costs in line with the trading climate • Margin management opportunity continues: • category mix management • Cost efficiency improvements through: • improved use of technology • supply chain • back office efficiencies
Travel – Space management • Invest in active management of our space • Constant effective evolution of space mix • Meet customer and landlord needs, optimise category mix and improve service and efficiency • Examples in H1 include: • reduction in Book space in Air; increase in Impulse space • increase in space to Kids categories • further space to self – checkouts in Air and Rail • Further opportunities
Travel – Format development • Opportunity to build on our expertise with the travelling customer • Opportunity to build on our relationships with landlords and extend into new areas • Aim to leverage our operating expertise and infrastructure • Trials to extend the WHSmith brand and develop and trial new brands: • - WHSmith Express - Funky Pigeon • - WHSmith BooksPlus - Memories of ...... • - WHSmith Café - Zoodle • - Fresh Plus • Trials working in partnership with other third party brands: • - Costa • - Marks & Spencer
High Street – overview • Strategy continues to deliver • Resilient profit performance in challenging trading conditions • LFL sales down 5% • Good market shares • Further improvement in gross margin; up by c.160 bps • Cost savings of £9m delivered; in line with revised guidance • Continued strong cash generation • Resilient business well positioned to continue to perform
Continue to build on market positioning in Stationery Good shares across Stationery category New gifting ranges performed well over Christmas Post Christmas stock position in line with plan Funkypigeon.com Strong performance over the Christmas period and Valentine’s day Encouraging results from new ranges New tablet and phone apps launched Category performance - Stationery
Market performance continues to vary by category Continue to utilise space to optimise category dynamics Consistently robust market share performance reflects our continued appeal to consumers in the physical books market Customer base lighter, less affluent book readers with relative strength in Kids and Non-Fiction eBooks incremental opportunity for WHSmith Around 80% of eBook downloads are Fiction Optimise space between physical books, eReaders and other categories Category performance - Books
Kobo performance Territory deal with Kobo in the UK Good performance from new season eReaders over Christmas period Price deflation in eReader market – WHSmith competed strongly Launched Kobo shops into our 100 largest High Street stores Positive customer feedback and encouraging performance to date Agreement to launch further 100 Kobo shops by Autumn 2013
Category performance – News & Impulse • News and Magazine market continues to be tough • Continue to grow market share • Further development of strongly-growing bookazine category • Impulse provides opportunity for growth • Strong performance from seasonal impulse ranges
High Street – Space management • Optimal use of space has been one of the fundamentals of our strategy • Enabled us to change category mix dramatically, improve margins and increase store efficiency • Space treated as a strategic asset • High level of expertise in the area • Major space changes conducted at least twice a year • Key changes in H1 focussed on cost reduction • Continue to see opportunities
Margin optimisation Margin growth of c.160 bps, delivered through continued focus on category mix management both across and within categories Additional margin growth from: better buying terms and improved sourcing, including further Far East office utilisation improved mark-down and promotional management improved shrinkage Continue to see further opportunities to grow margin
Cost efficiency Continued successful and focussed cost control Delivered savings of £9m in H1, in line with revised guidance Continually aim to adjust variable costs to sales Savings from across the business, projects large and small New tills Increasing sorter productivity Voice picking
Strong profit performance from the Group Economic environment continues to be challenging; continue to manage the business tightly whilst investing for the future Strong profit performance in Travel demonstrating the strength of the business, with further opportunities for growth in both the UK and internationally Robust performance from High Street, demonstrating profit growth and continued strong cash generation Good progress with share buyback - £28m returned to shareholders to date Interim dividend up 13% YoY Resilient Group with clear strategy, well executed and further growth opportunities both in High Street and Travel Summary
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